[Federal Register Volume 86, Number 133 (Thursday, July 15, 2021)]
[Notices]
[Pages 37379-37388]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-15036]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92366; File No. SR-PEARL-2021-32]


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Amend the MIAX 
Pearl Options Fee Schedule

July 9, 2021.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 1, 2021, MIAX PEARL, LLC (``MIAX Pearl'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing a proposal to amend the MIAX Pearl Options 
Fee Schedule (the ``Fee Schedule'') to remove certain credits and amend 
the monthly Trading Permit \3\ fees for Exchange Members.\4\
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    \3\ The term ``Trading Permit'' means a permit issued by the 
Exchange that confers the ability to transact on the Exchange. See 
Exchange Rule 100.
    \4\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of Exchange 
Rules for purposes of trading on the Exchange as an ``Electronic 
Exchange Member'' or ``Market Maker.'' Members are deemed 
``members'' under the Exchange Act. See Exchange Rule 100 and the 
Definitions Section of the Fee Schedule.
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    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
Pearl's principal office, and at the Commission's Public Reference 
Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the Fee Schedule to remove certain 
credits and amend the monthly Trading Permit fees (``Proposed Access 
Fees'') for Exchange Members.
Remove ``Monthly Volume Credit''
    The Exchange proposes to amend the Definitions section of the Fee 
Schedule to delete the definition and remove the credits applicable to 
the Monthly Volume Credit for Members. The

[[Page 37380]]

Exchange established the Monthly Volume Credit in 2018 \5\ to encourage 
Members to send increased Priority Customer \6\ order flow to the 
Exchange, which the Exchange applied to the assessment of certain non-
transaction rebates and fees for that Member. The Exchange applies a 
different Monthly Volume Credit depending on whether the Member 
connects to the Exchange via the FIX Interface \7\ or MEO Interface.\8\ 
Currently, the Exchange assesses the Monthly Volume Credit to a Member 
whose executed Priority Customer volume along with that of its 
Affiliates,\9\ not including Excluded Contracts,\10\ is at least 0.30% 
of MIAX Pearl-listed Total Consolidated Volume (``TCV''),\11\ as set 
forth in the following table:
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    \5\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \6\ ``Priority Customer'' means a person or entity that (i) is 
not a broker or dealer in securities, and (ii) does not place more 
than 390 orders in listed options per day on average during a 
calendar month for its own beneficial accounts(s). The number of 
orders shall be counted in accordance with Interpretation and Policy 
.01 of Exchange Rule 100. See the Definitions Section of the Fee 
Schedule and Exchange Rule 100, including Interpretation and Policy 
.01.
    \7\ ``FIX Interface'' means the Financial Information Exchange 
interface for certain order types as set forth in Exchange Rule 516. 
See the Definitions Section of the Fee Schedule and Exchange Rule 
100.
    \8\ ``MEO Interface'' or ``MEO'' means a binary order interface 
for certain order types as set forth in Rule 516 into the MIAX Pearl 
System. See the Definitions Section of the Fee Schedule and Exchange 
Rule 100.
    \9\ ``Affiliate'' means (i) an affiliate of a Member of at least 
75% common ownership between the firms as reflected on each firm's 
Form BD, Schedule A, or (ii) the Appointed Market Maker of an 
Appointed EEM (or, conversely, the Appointed EEM of an Appointed 
Market Maker). An ``Appointed Market Maker'' is a MIAX Pearl Market 
Maker (who does not otherwise have a corporate affiliation based 
upon common ownership with an EEM) that has been appointed by an EEM 
and an ``Appointed EEM'' is an EEM (who does not otherwise have a 
corporate affiliation based upon common ownership with a MIAX Pearl 
Market Maker) that has been appointed by a MIAX Pearl Market Maker, 
pursuant to the following process. A MIAX Pearl Market Maker 
appoints an EEM and an EEM appoints a MIAX Pearl Market Maker, for 
the purposes of the Fee Schedule, by each completing and sending an 
executed Volume Aggregation Request Form by email to 
<a href="/cdn-cgi/l/email-protection#7d1018101f180f0e15140d3d10141c05120d091412130e531e1210"><span class="__cf_email__" data-cfemail="28454d454a4d5a5b404158684541495047585c4147465b064b4745">[email protected]</span></a> no later than 2 business days prior to 
the first business day of the month in which the designation is to 
become effective. Transmittal of a validly completed and executed 
form to the Exchange along with the Exchange's acknowledgement of 
the effective designation to each of the Market Maker and EEM will 
be viewed as acceptance of the appointment. The Exchange will only 
recognize one designation per Member. A Member may make a 
designation not more than once every 12 months (from the date of its 
most recent designation), which designation shall remain in effect 
unless or until the Exchange receives written notice submitted 2 
business days prior to the first business day of the month from 
either Member indicating that the appointment has been terminated. 
Designations will become operative on the first business day of the 
effective month and may not be terminated prior to the end of the 
month. Execution data and reports will be provided to both parties. 
See the Definitions Section of the Fee Schedule.
    \10\ ``Excluded Contracts'' means any contracts routed to an 
away market for execution. See the Definitions Section of the Fee 
Schedule.
    \11\ ``TCV'' means total consolidated volume calculated as the 
total national volume in those classes listed on MIAX Pearl for the 
month for which the fees apply, excluding consolidated volume 
executed during the period of time in which the Exchange experiences 
an Exchange System Disruption (solely in the option classes of the 
affected Matching Engine). See the Definitions Section of the Fee 
Schedule.

------------------------------------------------------------------------
                                                          Monthly volume
                Type of member connection                     credit
------------------------------------------------------------------------
Member that connects via the FIX Interface..............            $250
Member that connects via the MEO Interface..............           1,000
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    If a Member connects via both the MEO Interface and FIX Interface 
and qualifies for the Monthly Volume Credit based upon its Priority 
Customer volume, the greater Monthly Volume Credit shall apply to such 
Member. The Monthly Volume Credit is a single, once-per-month credit 
towards the aggregate monthly total of non-transaction fees assessable 
to a Member.
    The Exchange now proposes to amend the Definitions section of the 
Fee Schedule to delete the definition and remove the Monthly Volume 
Credit. The Exchange established the Monthly Volume Credit when it 
first launched operations to attract order flow by lowering the initial 
fixed cost for Members. The Monthly Volume Credit has achieved its 
purpose and the Exchange now believes it is appropriate to remove this 
credit. The Exchange believes that the Exchange's existing Priority 
Customer rebates and fees will continue to allow the Exchange to remain 
highly competitive and continue to attract order flow and maintain 
market share.
Remove Trading Permit Fee Credit
    The Exchange proposes to amend Section 3)b) of the Fee Schedule to 
remove the Trading Permit fee credit that is denoted in footnote ``*'' 
below the Trading Permit fee table. The Trading Permit fee credit is 
applicable to Members that connect via both the MEO and FIX Interfaces. 
Currently, Members who connect via both the MEO and FIX Interfaces are 
assessed the rates for both types of Trading Permits, but these Members 
receive a $100 monthly credit towards the Trading Permit fees 
applicable to the MEO Interface use. The Exchange now proposes to 
remove the Trading Permit fee credit and delete footnote ``*'' from 
Section 3b) of the Fee Schedule.
    The Exchange established the Trading Permit fee credit when it 
first launched operations to attract order flow and increase membership 
by lowering the costs for Members that connect via both the MEO 
Interface and FIX Interface. The Trading Permit fee credit has achieved 
its purposes and the Exchange now believes that it is appropriate to 
remove this credit in light of the current operating conditions and 
membership population on the Exchange.
Amend Trading Permit Fees
    The Exchange proposes to amend Section 3b) of the Fee Schedule to 
increase the amount of the monthly Trading Permit fees. The Exchange 
issues Trading Permits to Members who are either Electronic Exchange 
Members \12\ (``EEMs'') or Market Makers.\13\ The Exchange assesses 
Trading Permit fees based upon the monthly total volume executed by the 
Member and its Affiliates on the Exchange across all origin types, not 
including Excluded Contracts, as compared to the total TCV in all MIAX 
Pearl-listed options. The Exchange adopted a tier-based fee structure 
based upon the volume-based tiers detailed in the definition of ``Non-
Transaction Fees Volume-Based Tiers'' \14\ in the Definitions section 
of the Fee Schedule. The Exchange also assesses Trading Permit fees 
based upon the type of interface used by the Member to connect to the 
Exchange--the FIX Interface and/or the MEO Interface.
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    \12\ The term ``Electronic Exchange Member'' or ``EEM'' means 
the holder of a Trading Permit who is a Member representing as agent 
Public Customer Orders or Non-Customer Orders on the Exchange and 
those non-Market Maker Members conducting proprietary trading. 
Electronic Exchange Members are deemed ``members'' under the 
Exchange Act. See the Definitions Section of the Fee Schedule.
    \13\ The term ``Market Maker'' or ``MM'' means a Member 
registered with the Exchange for the purpose of making markets in 
options contracts traded on the Exchange and that is vested with the 
rights and responsibilities specified in Chapter VI of these Rules. 
See the Definitions Section of the Fee Schedule.
    \14\ See the Definitions Section of the Fee Schedule for the 
monthly volume thresholds associated with each Tier.
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    Current Trading Permit Fees. Currently, each Member who connects to 
the System \15\ via the FIX Interface is assessed the following monthly 
Trading Permit fees:
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    \15\ The term ``System'' means the automated trading system used 
by the Exchange for the trading of securities. See Exchange Rule 
100.
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    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $250;

[[Page 37381]]

    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $350; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $450.
    Each Member who connects to the System via the MEO Interface is 
assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $300;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 
0.60%, $400; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, or volume above 0.60%, $500.
    Proposed Trading Permit Fees. The Exchange now proposes to amend 
its Trading Permit fees as follows. Each Member who connects to the 
System via the FIX Interface will be assessed the following monthly 
Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $1,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $1,500.
    Each Member who connects to the System via the MEO Interface will 
be assessed the following monthly Trading Permit fees:
    (i) If its volume falls within the parameters of Tier 1 of the Non-
Transaction Fees Volume-Based Tiers, $2,500;
    (ii) if its volume falls within the parameters of Tier 2 of the 
Non-Transaction Fees Volume-Based Tiers, $4,000; and
    (iii) if its volume falls with the parameters of Tier 3 of the Non-
Transaction Fees Volume-Based Tiers, $6,000.
    Members who use the MEO Interface may also connect to the System 
through the FIX Interface as well, and vice versa. The Exchange notes 
that the Trading Permit fees for Members who connect through the MEO 
Interface are higher than the Trading Permit fees for Members who 
connect through the FIX Interface, since the FIX Interface utilizes 
less capacity and resources of the Exchange. The MEO Interface offers 
lower latency and higher throughput, which utilizes greater capacity 
and resources of the Exchange. The FIX Interface offers lower bandwidth 
requirements and an industry-wide uniform message format. Both EEMs and 
Market Makers may connect to the Exchange using either interface.
    Trading Permits grant access to the Exchange, thus providing the 
ability to submit orders and trade on the Exchange, in the manner 
defined in the relevant Trading Permit. Without a Trading Permit, a 
Member cannot directly trade on the Exchange. Therefore, a Trading 
Permit is a means to directly access the Exchange (which offers 
meaningful value), and the Exchange now proposes to increase its 
monthly fees since it has not done so since the fees were first adopted 
in 2018 \16\ and are designed to recover a portion of the costs 
associated with directly accessing the Exchange. The Exchange notes 
that the its affiliates, Miami International Securities Exchange, LLC 
(``MIAX'') and MIAX Emerald, LLC (``MIAX Emerald''), charge a similar, 
fixed trading permit fee to certain users, and a similar, varying 
trading permit fee to other users, based upon the number of assignments 
of option classes or the percentage of volume in option classes.\17\ 
The Exchange notes that other options exchanges assess certain of their 
membership fees at different rates, based upon a member's participation 
on that exchange,\18\ and, as such, this concept is not new or novel. 
The Exchange also notes that the proposed increased Trading Permit fees 
are in line with, or cheaper than, the trading permit fees or similar 
membership fees charged by other options exchanges.\19\
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    \16\ See Securities Exchange Act Release No. 82867 (March 13, 
2018), 83 FR 12044 (March 19, 2018) (SR-PEARL-2018-07).
    \17\ See the MIAX Fee Schedule, Section 3)b); MIAX Emerald Fee 
Schedule, Section 3)b).
    \18\ See e.g., NYSE Arca Options Fees and Charges, p.1 
(assessing market makers $6,000 for up to 175 option issues, an 
additional $5,000 for up to 350 option issues, an additional $4,000 
for up to 1,000 option issues, an additional $3,000 for all option 
issues on the exchange, and an additional $1,000 for the fifth 
trading permit and for each trading permit thereafter); NYSE 
American Options Fee Schedule, p. 23 (assessing market makers $8,000 
for up to 60 plus the bottom 45% of option issues, an additional 
$6,000 for up to 150 plus the bottom 45% of option issues, an 
additional $5,000 for up to 500 plus the bottom 45% of option 
issues, and additional $4,000 for up to 1,100 plus the bottom 45% of 
option issues, an additional $3,000 for all issues traded on the 
exchange, and an additional $2,000 for 6th to 9th ATPs; plus an 
addition fee for premium products). See also Cboe BZX Options 
Exchange (``BZX Options'') assesses the Participant Fee, which is a 
membership fee, according to a member's ADV. See Cboe BZX Options 
Exchange Fee Schedule under ``Membership Fees''. The Participant Fee 
is $500 if the member ADV is less than 5000 contracts and $1,000 if 
the member ADV is equal to or greater than 5000 contracts. Id.
    \19\ See id.
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2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \20\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \21\ in 
particular, in that it is an equitable allocation of reasonable dues, 
fees and other charges among its members and issuers and other persons 
using its facilities. The Exchange also believes the proposal furthers 
the objectives of Section 6(b)(5) of the Act in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest and is not designed to permit unfair discrimination between 
customers, issuers, brokers and dealers.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that exchanges, in setting fees of all types, 
should meet very high standards of transparency to demonstrate why each 
new fee or fee increase meets the requirements of the Act that fees be 
reasonable, equitably allocated, not unfairly discriminatory, and not 
create an undue burden on competition among market participants. The 
Exchange believes this high standard is especially important when an 
exchange imposes various access fees for market participants to access 
an exchange's marketplace. The Exchange deems Trading Permit fees to be 
Access Fees. It records these fees as part of its ``Access Fees'' 
revenue in its financial statements. The Exchange believes that it is 
important to demonstrate that these fees are based on its costs and 
reasonable business needs. The Exchange believes the Proposed Access 
Fees will allow the Exchange to offset expenses the Exchange has and 
will incur, and that the Exchange is providing sufficient transparency 
(as described below) into how the Exchange determined to charge such 
fees. Accordingly, the Exchange is providing an analysis of its 
revenues, costs, and profitability associated with the Proposed Access 
Fees. This analysis includes information regarding its methodology for 
determining the costs and revenues associated with the Proposed Access 
Fees.

[[Page 37382]]

    In order to determine the Exchange's costs to provide the access 
services associated with the Proposed Access Fees, the Exchange 
conducted an extensive cost review in which the Exchange analyzed every 
expense item in the Exchange's general expense ledger to determine 
whether each such expense relates to the Proposed Access Fees, and, if 
such expense did so relate, what portion (or percentage) of such 
expense actually supports the access services. The sum of all such 
portions of expenses represents the total cost of the Exchange to 
provide the access services associated with the Proposed Access Fees. 
For the avoidance of doubt, no expense amount was allocated twice. The 
Exchange is also providing detailed information regarding the 
Exchange's cost allocation methodology--namely, information that 
explains the Exchange's rationale for determining that it was 
reasonable to allocate certain expenses described in this filing 
towards the cost to the Exchange to provide the access services 
associated with the Proposed Access Fees.
    In order to determine the Exchange's projected revenues associated 
with the Proposed Access Fees, the Exchange analyzed the number of 
Members currently utilizing the Trading Permits, and, utilizing a 
recent monthly billing cycle representative of 2021 monthly revenue, 
extrapolated annualized revenue on a going-forward basis. The Exchange 
does not believe it is appropriate to factor into its analysis future 
revenue growth or decline into its projections for purposes of these 
calculations, given the uncertainty of such projections due to the 
continually changing access needs of market participants, discounts 
that can be achieved due to lower trading volume and vice versa, market 
participant consolidation, etc. Additionally, the Exchange similarly 
does not factor into its analysis future cost growth or decline. The 
Exchange is presenting its revenue and expense associated with the 
Proposed Access Fees in this filing in a manner that is consistent with 
how the Exchange presents its revenue and expense in its Audited 
Unconsolidated Financial Statements. The Exchange's most recent Audited 
Unconsolidated Financial Statement is for 2020. However, since the 
revenue and expense associated with the Proposed Access Fees were not 
in place in 2020 or for the first two quarters of 2021, the Exchange 
believes its 2020 Audited Unconsolidated Financial Statement is not 
useful for analyzing the reasonableness of the total annual revenue and 
costs associated with the Proposed Access Fees. Accordingly, the 
Exchange believes it is more appropriate to analyze the Proposed Access 
Fees utilizing its 2021 revenue and costs, as described herein, which 
utilize the same presentation methodology as set forth in the 
Exchange's previously-issued Audited Unconsolidated Financial 
Statements. Based on this analysis, the Exchange believes that the 
Proposed Access Fees are fair and reasonable because they will not 
result in excessive pricing or supra-competitive profit when comparing 
the Exchange's total annual expense associated with providing the 
services associated with the Proposed Access Fees versus the total 
projected annual revenue the Exchange will collect for providing those 
services.
    The Exchange notes that this is the same process utilized by the 
Exchange's affiliate, MIAX Emerald, in a filing recently noticed by the 
Commission when MIAX Emerald adopted its own trading permit fees.\22\
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    \22\ See Securities Exchange Act Release No. 91033 (February 1, 
2021), 86 FR 8455 (February 5, 2021) (SR-EMERALD-2021-03) (Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To 
Amend Its Fee Schedule To Adopt Monthly Trading Permit Fees).
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* * * * *
    On March 29, 2019, the Commission issued its Order Disapproving 
Proposed Rule Changes to Amend the Fee Schedule on the BOX Market LLC 
Options Facility to Establish BOX Connectivity Fees for Participants 
and Non-Participants Who Connect to the BOX Network (the ``BOX 
Order'').\23\ On May 21, 2019, the Commission issued the Staff Guidance 
on SRO Rule Filings Relating to Fees.\24\ Accordingly, the Exchange 
believes that the Proposed Access Fees are consistent with the Act 
because they (i) are reasonable, equitably allocated, not unfairly 
discriminatory, and not an undue burden on competition; (ii) comply 
with the BOX Order and the Guidance; (iii) are supported by evidence 
(including comprehensive revenue and cost data and analysis) that they 
are fair and reasonable because they will not result in excessive 
pricing or supra-competitive profit; and (iv) utilize a cost-based 
justification framework that is substantially similar to a framework 
previously used by the Exchange, and its affiliates MIAX and MIAX 
Emerald, to establish or increase other non-transaction fees. 
Accordingly, the Exchange believes that the Commission should find that 
the Proposed Access Fees are consistent with the Act.
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    \23\ See Securities Exchange Act Release No. 85459 (March 29, 
2019), 84 FR 13363 (April 4, 2019) (SR-BOX-2018-24, SR-BOX-2018-37, 
and SR-BOX-2019-04).
    \24\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
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* * * * *
    As of June 30, 2021, the Exchange had only a 5.31% market share of 
the U.S. equity options industry for the month of June 2021.\25\ The 
Exchange is not aware of any evidence that a market share of 
approximately 5-6% provides the Exchange with anti-competitive pricing 
power. If the Exchange were to attempt to establish unreasonable 
pricing, then no market participant would join or connect, and existing 
market participants would disconnect.
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    \25\ See ``The market at a glance'', available at 
www.miaxoptions.com (last visited June 30, 2021).
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    Separately, the Exchange is not aware of any reason why market 
participants could not simply drop their access to an exchange (or not 
initially access an exchange) if an exchange were to establish prices 
for its non-transaction fees that, in the determination of such market 
participant, did not make business or economic sense for such market 
participant to access such exchange. No options market participant is 
required by rule, regulation, or competitive forces to be a Member of 
the Exchange. As evidence of the fact that market participants can and 
do drop their access to exchanges based on non-transaction fee pricing, 
R2G Services LLC (``R2G'') filed a comment letter after BOX's proposed 
rule changes to increase its connectivity fees (SR-BOX-2018-24, SR-BOX-
2018-37, and SR-BOX-2019-04). The R2G Letter stated, ``[w]hen BOX 
instituted a $10,000/month price increase for connectivity; we had no 
choice but to terminate connectivity into them as well as terminate our 
market data relationship. The cost benefit analysis just didn't make 
any sense for us at those new levels.'' Similarly, the Exchange's 
affiliate, MIAX Emerald, noted in a recent filing that once MIAX 
Emerald issued a notice that it was instituting Trading Permit fees, 
among other non-transaction fees, one Member dropped its access to the 
Exchange as a result of those fees.\26\ Accordingly, these examples 
show that if an exchange sets too high of a fee for connectivity and/or 
other non-transaction fees for its relevant marketplace, market 
participants can choose to drop their access to such exchange.
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    \26\ See supra note 22.
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Removal of Monthly Volume Credit and Trading Permit Fee Credit
    The Exchange believes its proposal to remove the Monthly Volume 
Credit is

[[Page 37383]]

reasonable, equitable and not unfairly discriminatory because all 
market participants will no longer be offered the ability to achieve 
the extra credits associated with the Monthly Volume Credit for 
submitting Priority Customer volume to the Exchange and access to the 
Exchange is offered on terms that are not unfairly discriminatory. The 
Exchange believes it is equitable and not unfairly discriminatory to 
remove the Monthly Volume Credit from the Fee Schedule for business and 
competitive reasons because, in order to attract order flow when the 
Exchange first launched operations, the Exchange established the 
Monthly Volume Credit to lower the initial fixed cost for Members. The 
Exchange now believes that it is appropriate to remove this credit in 
light of the current operating conditions and the current type and 
amount of Priority Customer volume executed on the Exchange. The 
Exchange believes that the Exchange's Priority Customer rebates and 
fees will still allow the Exchange to remain highly competitive such 
that the Exchange should continue to attract order flow and maintain 
market share.
    The Exchange believes its proposal to remove the Trading Permit fee 
credit for Members that connect via both the MEO Interface and FIX 
Interface is reasonable, equitable and not unfairly discriminatory 
because all market participants will no longer be offered the ability 
to receive the credit and access to the Exchange is offered on terms 
that are not unfairly discriminatory. The Exchange believes it is 
equitable and not unfairly discriminatory to remove the Trading Permit 
fee credit for business and competitive reasons because, in order to 
attract order flow and membership after the Exchange first launched 
operations, the Exchange established the Trading Permit fee credit to 
lower the costs for Members that connect via both the MEO Interface and 
FIX Interface. The Exchange now believes that it is appropriate to 
remove this credit in light of the current operating conditions and 
membership on the Exchange.
Trading Permit Fee Increase
    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the Proposed Access Fees will not result in 
excessive pricing or supra-competitive profit. The Proposed Access Fees 
are also reasonable and equitable because they are in line with, or 
cheaper than, the trading permit fees or similar membership fees 
charged by other options exchanges.\27\ The costs associated with 
providing access to Exchange Members and non-Members, as well as the 
general expansion of a state-of-the-art infrastructure, are extensive, 
have increased year-over-year, and are projected to increase year-over-
year in the future.
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    \27\ See supra note 18.
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    The Exchange's high performance network solutions and supporting 
infrastructure (including employee support), provides unparalleled 
system throughput and the capacity to handle approximately 10.7 million 
order messages per second. On an average day, the Exchange handles over 
approximately 2.7 billion total messages. However, in order to achieve 
a consistent, premium network performance, the Exchange must build out 
and maintain a network that has the capacity to handle the message rate 
requirements of its most heavy network consumers. These billions of 
messages per day consume the Exchange's resources and significantly 
contribute to the overall expense for storage and network transport 
capabilities.
    In order to provide more detail and to quantify the Exchange's 
costs associated with providing access to the Exchange in general, the 
Exchange notes that there are material costs associated with providing 
the infrastructure and headcount to fully-support access to the 
Exchange. The Exchange incurs technology expense related to 
establishing and maintaining Information Security services, enhanced 
network monitoring and customer reporting, as well as Regulation SCI 
mandated processes, associated with its network technology. While some 
of the expense is fixed, much of the expense is not fixed, and thus 
increases as the services associated with the Proposed Access Fees 
increase. For example, new Members to the Exchange may require the 
purchase of additional hardware to support those Members as well as 
enhanced monitoring and reporting of customer performance that the 
Exchange and its affiliates provide. Further, as the total number of 
Members increases, the Exchange and its affiliates may need to increase 
their data center footprint and consume more power, resulting in 
increased costs charged by their third-party data center provider. 
Accordingly, the cost to the Exchange and its affiliates to provide 
access to its Members is not fixed. The Exchange believes the Proposed 
Access Fees are reasonable in order to offset a portion of the costs to 
the Exchange associated with providing access to its network 
infrastructure.
    The Exchange only has four primary sources of revenue: Transaction 
fees, access fees (which includes the Proposed Access Fees), regulatory 
fees, and market data fees. Accordingly, the Exchange must cover all of 
its expenses from these four primary sources of revenue.
    The Exchange believes that the Proposed Access Fees are fair and 
reasonable because they will not result in excessive pricing or supra-
competitive profit, when comparing the total annual expense that the 
Exchange projects to incur in connection with providing these access 
services versus the total annual revenue that the Exchange projects to 
collect in connection with services associated with the Proposed Access 
Fees. For 2021,\28\ the total annual expense for providing the access 
services associated with the Proposed Access Fees for the Exchange is 
projected to be approximately $844,741. The $844,741 in projected total 
annual expense is comprised of the following, all of which are directly 
related to the access services associated with the Proposed Access 
Fees: (1) Third-party expense, relating to fees paid by the Exchange to 
third-parties for certain products and services; and (2) internal 
expense, relating to the internal costs of the Exchange to provide the 
services associated with the Proposed Access Fees.\29\ As noted above, 
the Exchange believes it is more appropriate to analyze the Proposed 
Access Fees utilizing its 2021 revenue and costs, which utilize the 
same presentation methodology as set forth in the Exchange's 
previously-issued Audited Unconsolidated Financial Statements.\30\ The 
$844,741 in projected total annual expense is directly related to the 
access services associated with the Proposed Access Fees, and not any 
other product or service offered by the Exchange. It does not include 
general

[[Page 37384]]

costs of operating matching systems and other trading technology, and 
no expense amount was allocated twice.
---------------------------------------------------------------------------

    \28\ The Exchange has not yet finalized its 2021 year end 
results.
    \29\ The percentage allocations used in this proposed rule 
change may differ from past filings from the Exchange or its 
affiliates due to, among other things, changes in expenses charged 
by third-parties, adjustments to internal resource allocations, and 
different system architecture of the Exchange as compared to its 
affiliates.
    \30\ For example, the Exchange previously noted that all third-
party expense described in its prior fee filing was contained in the 
information technology and communication costs line item under the 
section titled ``Operating Expenses Incurred Directly or Allocated 
From Parent,'' in the Exchange's 2019 Form 1 Amendment containing 
its financial statements for 2018. See Securities Exchange Act 
Release No. 87876 (December 31, 2019), 85 FR 757 (January 7, 2020) 
(SR-PEARL-2019-36). Accordingly, the third-party expense described 
in this filing is attributed to the same line item for the 
Exchange's 2021 Form 1 Amendment, which will be filed in 2022.
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    As discussed, the Exchange conducted an extensive cost review in 
which the Exchange analyzed every expense item in the Exchange's 
general expense ledger (this includes over 150 separate and distinct 
expense items) to determine whether each such expense relates to the 
access services associated with the Proposed Access Fees, and, if such 
expense did so relate, what portion (or percentage) of such expense 
actually supports those services, and thus bears a relationship that 
is, ``in nature and closeness,'' directly related to those services. 
The sum of all such portions of expenses represents the total cost of 
the Exchange to provide access services associated with the Proposed 
Access Fees.
    For 2021, total third-party expense, relating to fees paid by the 
Exchange to third-parties for certain products and services for the 
Exchange to be able to provide the access services associated with the 
Proposed Access Fees, is projected to be $188,815. This includes, but 
is not limited to, a portion of the fees paid to: (1) Equinix, for data 
center services, for the primary, secondary, and disaster recovery 
locations of the Exchange's trading system infrastructure; (2) Zayo 
Group Holdings, Inc. (``Zayo'') for network services (fiber and 
bandwidth products and services) linking the Exchange's office 
locations in Princeton, New Jersey and Miami, Florida, to all data 
center locations; (3) Secure Financial Transaction Infrastructure 
(``SFTI''),\31\ which supports connectivity and feeds for the entire 
U.S. options industry; (4) various other services providers (including 
Thompson Reuters, NYSE, Nasdaq, and Internap), which provide content, 
connectivity services, and infrastructure services for critical 
components of options connectivity and network services; and (5) 
various other hardware and software providers (including Dell and 
Cisco, which support the production environment in which Members 
connect to the network to trade, receive market data, etc.).
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    \31\ In fact, on October 22, 2019, the Exchange was notified by 
SFTI that it is again raising its fees charged to the Exchange by 
approximately 11%, without having to show that such fee change 
complies with the Act by being reasonable, equitably allocated, and 
not unfairly discriminatory. It is unfathomable to the Exchange 
that, given the critical nature of the infrastructure services 
provided by SFTI, that its fees are not required to be rule-filed 
with the Commission pursuant to Section 19(b)(1) of the Act and Rule 
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4, 
respectively.
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    For clarity, only a portion of all fees paid to such third-parties 
is included in the third-party expense herein, and no expense amount is 
allocated twice. Accordingly, the Exchange does not allocate its entire 
information technology and communication costs to the access services 
associated with the Proposed Access Fees. Further, the Exchange notes 
that, with respect to the MIAX Pearl expenses included herein, those 
expenses only cover the MIAX Pearl options market; expenses associated 
with the MIAX Pearl equities market are accounted for separately and 
are not included within the scope of this filing.
    The Exchange believes it is reasonable to allocate such third-party 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange believes it is reasonable to allocate the 
identified portion of the Equinix expense because Equinix operates the 
data centers (primary, secondary, and disaster recovery) that host the 
Exchange's network infrastructure. This includes, among other things, 
the necessary storage space, which continues to expand and increase in 
cost, power to operate the network infrastructure, and cooling 
apparatuses to ensure the Exchange's network infrastructure maintains 
stability. Without these services from Equinix, the Exchange would not 
be able to operate and support the network and provide the access 
services associated with the Proposed Access Fees to its Members and 
their customers. The Exchange did not allocate all of the Equinix 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only that portion which the Exchange 
identified as being specifically mapped to providing the access 
services associated with the Proposed Access Fees, approximately 8% of 
the total applicable Equinix expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees, and not any other service, as supported by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portion of the Zayo expense because Zayo provides the internet, fiber 
and bandwidth connections with respect to the network, linking the 
Exchange with its affiliates, MIAX and MIAX Emerald, as well as the 
data center and disaster recovery locations. As such, all of the trade 
data, including the billions of messages each day per exchange, flow 
through Zayo's infrastructure over the Exchange's network. Without 
these services from Zayo, the Exchange would not be able to operate and 
support the network and provide the access services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the Zayo 
expense toward the cost of providing the access services associated 
with the Proposed Access Fees, only the portion which the Exchange 
identified as being specifically mapped to providing the Proposed 
Access Fees, approximately 4% of the total applicable Zayo expense. The 
Exchange believes this allocation is reasonable because it represents 
the Exchange's actual cost to provide the access services associated 
with the Proposed Access Fees, and not any other service, as supported 
by its cost review.
    The Exchange believes it is reasonable to allocate the identified 
portions of the SFTI expense and various other service providers' 
(including Thompson Reuters, NYSE, Nasdaq, and Internap) expense 
because those entities provide connectivity and feeds for the entire 
U.S. options industry, as well as the content, connectivity services, 
and infrastructure services for critical components of the network. 
Without these services from SFTI and various other service providers, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the SFTI and other service providers' expense toward 
the cost of providing the access services associated with the Proposed 
Access Fees, only the portions which the Exchange identified as being 
specifically mapped to providing the access services associated with 
the Proposed Access Fees, approximately 3% of the total applicable SFTI 
and other service providers' expense. The Exchange believes this 
allocation is reasonable because it represents the Exchange's actual 
cost to provide the access services associated with the Proposed Access 
Fees.
    The Exchange believes it is reasonable to allocate the identified 
portion of the other hardware and software provider expense because 
this includes costs for dedicated hardware licenses for switches and 
servers, as well as dedicated software licenses for security monitoring 
and reporting across the network. Without this hardware and software, 
the Exchange would not be able to operate and support the network and 
provide access to its Members and their customers. The Exchange did not 
allocate all of the hardware and software provider expense toward the 
cost of

[[Page 37385]]

providing the access services associated with the Proposed Access Fees, 
only the portions which the Exchange identified as being specifically 
mapped to providing the access services associated with the Proposed 
Access Fees, approximately 5% of the total applicable hardware and 
software provider expense. The Exchange believes this allocation is 
reasonable because it represents the Exchange's actual cost to provide 
the access services associated with the Proposed Access Fees.
    For 2021, total projected internal expense, relating to the 
internal costs of the Exchange to provide the access services 
associated with the Proposed Access Fees, is projected to be $655,925. 
This includes, but is not limited to, costs associated with: (1) 
Employee compensation and benefits for full-time employees that support 
the access services associated with the Proposed Access Fees, including 
staff in network operations, trading operations, development, system 
operations, business, as well as staff in general corporate departments 
(such as legal, regulatory, and finance) that support those employees 
and functions (including an increase as a result of the higher 
determinism project); (2) depreciation and amortization of hardware and 
software used to provide the access services associated with the 
Proposed Access Fees, including equipment, servers, cabling, purchased 
software and internally developed software used in the production 
environment to support the network for trading; and (3) occupancy costs 
for leased office space for staff that provide the access services 
associated with the Proposed Access Fees. The breakdown of these costs 
is more fully-described below. For clarity, only a portion of all such 
internal expenses are included in the internal expense herein, and no 
expense amount is allocated twice. Accordingly, the Exchange does not 
allocate its entire costs contained in those items to the access 
services associated with the Proposed Access Fees.
    The Exchange believes it is reasonable to allocate such internal 
expense described above towards the total cost to the Exchange to 
provide the access services associated with the Proposed Access Fees. 
In particular, the Exchange's employee compensation and benefits 
expense relating to providing the access services associated with the 
Proposed Access Fees is projected to be $549,834, which is only a 
portion of the $9,163,894 total projected expense for employee 
compensation and benefits. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because this includes 
the time spent by employees of several departments, including 
Technology, Back Office, Systems Operations, Networking, Business 
Strategy Development (who create the business requirement documents 
that the Technology staff use to develop network features and 
enhancements), Trade Operations, Finance (who provide billing and 
accounting services relating to the network), and Legal (who provide 
legal services relating to the network, such as rule filings and 
various license agreements and other contracts). As part of the 
extensive cost review conducted by the Exchange, the Exchange reviewed 
the amount of time spent by each employee on matters relating to the 
provision of access services associated with the Proposed Access Fees. 
Without these employees, the Exchange would not be able to provide the 
access services associated with the Proposed Access Fees to its Members 
and their customers. The Exchange did not allocate all of the employee 
compensation and benefits expense toward the cost of the access 
services associated with the Proposed Access Fees, only the portions 
which the Exchange identified as being specifically mapped to providing 
the access services associated with the Proposed Access Fees, 
approximately 6% of the total applicable employee compensation and 
benefits expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's actual cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.
    The Exchange's depreciation and amortization expense relating to 
providing the access services associated with the Proposed Access Fees 
is projected to be $66,316, which is only a portion of the $1,326,325 
total projected expense for depreciation and amortization. The Exchange 
believes it is reasonable to allocate the identified portion of such 
expense because such expense includes the actual cost of the computer 
equipment, such as dedicated servers, computers, laptops, monitors, 
information security appliances and storage, and network switching 
infrastructure equipment, including switches and taps that were 
purchased to operate and support the network and provide the access 
services associated with the Proposed Access Fees. Without this 
equipment, the Exchange would not be able to operate the network and 
provide the access services associated with the Proposed Access Fees to 
its Members and their customers. The Exchange did not allocate all of 
the depreciation and amortization expense toward the cost of providing 
the access services associated with the Proposed Access Fees, only the 
portion which the Exchange identified as being specifically mapped to 
providing the access services associated with the Proposed Access Fees, 
approximately 5% of the total applicable depreciation and amortization 
expense, as these access services would not be possible without relying 
on such. The Exchange believes this allocation is reasonable because it 
represents the Exchange's actual cost to provide the access services 
associated with the Proposed Access Fees, and not any other service, as 
supported by its cost review.
    The Exchange's occupancy expense relating to providing the access 
services associated with the Proposed Access Fees is projected to be 
$39,775, which is only a portion of the $497,180 total projected 
expense for occupancy. The Exchange believes it is reasonable to 
allocate the identified portion of such expense because such expense 
represents the portion of the Exchange's cost to rent and maintain a 
physical location for the Exchange's staff who operate and support the 
network, including providing the access services associated with the 
Proposed Access Fees. This amount consists primarily of rent for the 
Exchange's Princeton, NJ office, as well as various related costs, such 
as physical security, property management fees, property taxes, and 
utilities. The Exchange operates its Network Operations Center 
(``NOC'') and Security Operations Center (``SOC'') from its Princeton, 
New Jersey office location. A centralized office space is required to 
house the staff that operates and supports the network. The Exchange 
currently has approximately 150 employees. Approximately two-thirds of 
the Exchange's staff are in the Technology department, and the majority 
of those staff have some role in the operation and performance of the 
access services associated with the proposed Trading Permit fees. 
Without this office space, the Exchange would not be able to operate 
and support the network and provide the access services associated with 
the Proposed Access Fees to its Members and their customers. 
Accordingly, the Exchange believes it is reasonable to allocate the 
identified portion of its occupancy expense because such amount 
represents the Exchange's actual cost to house the equipment and 
personnel who operate and support the Exchange's

[[Page 37386]]

network infrastructure and the access services associated with the 
Proposed Access Fees. The Exchange did not allocate all of the 
occupancy expense toward the cost of providing the access services 
associated with the Proposed Access Fees, only the portion which the 
Exchange identified as being specifically mapped to operating and 
supporting the network, approximately 8% of the total applicable 
occupancy expense. The Exchange believes this allocation is reasonable 
because it represents the Exchange's cost to provide the access 
services associated with the Proposed Access Fees, and not any other 
service, as supported by its cost review.
    The Exchange notes that a material portion of its total overall 
expense is allocated to the provision of access services (including 
connectivity, ports, and trading permits). The Exchange believes this 
is reasonable and in line, as the Exchange operates a technology-based 
business that differentiates itself from its competitors based on its 
trading systems that rely on access to a high performance network, 
resulting in significant technology expense. Over two-thirds of 
Exchange staff are technology-related employees. The majority of the 
Exchange's expense is technology-based. As described above, the 
Exchange has only four primary sources of fees to recover its costs, 
thus the Exchange believes it is reasonable to allocate a material 
portion of its total overall expense towards access fees.
    Accordingly, based on the facts and circumstances presented, the 
Exchange believes that its provision of the access services associated 
with the Proposed Access Fees will not result in excessive pricing or 
supra-competitive profit. To illustrate, on a going-forward, fully-
annualized basis, the Exchange projects that its annualized revenue for 
providing the access services associated with the Proposed Access Fees 
would be approximately $1,170,000 per annum, based on a recent billing 
cycle. The Exchange projects that its annualized expense for providing 
the access services associated with the Proposed Access Fees would be 
approximately $844,741 per annum. Accordingly, on a fully-annualized 
basis, the Exchange believes its total projected revenue for providing 
the access services associated with the Proposed Access Fees will not 
result in excessive pricing or supra-competitive profit, as the 
Exchange will make only a 28% profit margin on the Proposed Access Fees 
($1,170,000 in revenue minus $844,741 in expense = $325,259 profit per 
annum). The Exchange notes that the fees charged for Trading Permits 
can vary from month to month depending on the type of interface used 
and the Non-Transaction Fees Volume-Based Tier that is achieved for 
that month. As such, the revenue projection is not a static number, 
with monthly Trading Permit fees likely to fluctuate month to month.
    For the avoidance of doubt, none of the expenses included herein 
relating to the access services associated with the Proposed Access 
Fees relate to the provision of any other services offered by the 
Exchange. Stated differently, no expense amount of the Exchange is 
allocated twice. The Exchange notes that, with respect to the MIAX 
Pearl expenses included herein, those expenses only cover the MIAX 
Pearl options market; expenses associated with the MIAX Pearl equities 
market and the Exchange's affiliate exchanges, MIAX and MIAX Emerald, 
are accounted for separately and are not included within the scope of 
this filing. Stated differently, no expense amount of the Exchange is 
also allocated to MIAX Pearl Equites, MIAX or MIAX Emerald.
    The Exchange believes it is reasonable, equitable and not unfairly 
discriminatory to allocate the respective percentages of each expense 
category described above towards the total cost to the Exchange of 
operating and supporting the network, including providing the access 
services associated with the Proposed Access Fees because the Exchange 
performed a line-by-line item analysis of all the expenses of the 
Exchange, and has determined the expenses that directly relate to 
providing access to the Exchange. Further, the Exchange notes that, 
without the specific third-party and internal items listed above, the 
Exchange would not be able to provide the access services associated 
with the Proposed Access Fees to its Members and their customers. Each 
of these expense items, including physical hardware, software, employee 
compensation and benefits, occupancy costs, and the depreciation and 
amortization of equipment, have been identified through a line-by-line 
item analysis to be integral to providing access services. The Proposed 
Access Fees are intended to recover the Exchange's costs of providing 
access to Exchange Systems. Accordingly, the Exchange believes that the 
Proposed Access Fees are fair and reasonable because they do not result 
in excessive pricing or supra-competitive profit, when comparing the 
actual costs to the Exchange versus the projected annual revenue from 
the Proposed Access Fees.
    The Exchange believes the proposed changes are reasonable, 
equitably allocated and not unfairly discriminatory, and do not result 
in a ``supra-competitive'' \32\ profit. Of note, the Guidance defines 
``supra-competitive profit'' as profits that exceed the profits that 
can be obtained in a competitive market.\33\ With the proposed changes, 
the Exchange anticipates it will have a profit margin of 28% for its 
Trading Permit fees. Based on the 2019 Audited Financial Statements of 
the competing options exchanges (since the 2020 Audited Financial 
Statements will likely not become publicly available until early July 
2021, after the Exchange has submitted this filing), the Exchange's 
profit margin is well below the operating profit margins of other 
competing exchanges. For example, Nasdaq ISE, LLC's (``ISE'') operating 
profit margin, for all of 2019, was 83%.\34\ ISE's equity options 
market share for all of 2019 was 8.99%\35\ while its access fees are as 
follows: $500 per month for Electronic Access Members; $5,000 per month 
for Primary Market Makers; and $2,500 per month for Competitive Market 
Makers.\36\ Nasdaq PHLX LLC's (``PHLX'') operating profit margin, for 
all of 2019, was 67%.\37\ PHLX's equity options market share for all of 
2019 was 15.85%\38\ while its permit fees are as follows: $4,000 per 
month for Floor Brokers; $6,000 per month for Floor Lead Market Makers 
and Floor Market Makers; and $4,000 per month for Remote Lead Market 
Makers and Remote Market Makers.\39\
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    \32\ See Staff Guidance on SRO Rule Filings Relating to Fees 
(May 21, 2019), at https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees (the ``Guidance'').
    \33\ See id.
    \34\ See PHLX Form 1, Exhibit D, filed June 30, 2020 available 
at https://sec.report/Document/9999999997-20-003902/.
    \35\ See https://www.theocc.com/Market-Data/Market-Data-Reports/Volume-and-Open-Interest/Volume-by-Exchange.
    \36\ See Nasdaq ISE LLC Options 7 Pricing Schedule, Section 8.A. 
Access Services, at https://listingcenter.nasdaq.com/rulebook/ise/rules/ISE%20Options%207.
    \37\ See ISE Form 1, filed June 29, 2020 available at Form 1--
ISE--Final (1).pdf (sec.gov).
    \38\ See supra note 33.
    \39\ See Nasdaq PHLX Options 7 Pricing Schedule, Section 8.A. 
Permit and Registration Fees, at https://listingcenter.nasdaq.com/rulebook/phlx/rules/Phlx%20Options%207.
---------------------------------------------------------------------------

    The Exchange further believes its proposed fees are reasonable, 
equitably allocated and not unfairly discriminatory because the 
Exchange, and its affiliates, are still recouping the initial 
expenditures from building out their systems while the legacy exchanges 
have already paid for and built their systems.

[[Page 37387]]

    The Exchange believes that the Proposed Access Fees are reasonable, 
equitable and not unfairly discriminatory because they are in line 
with, or cheaper than, the trading permit fees or similar membership 
fees charged by other options exchanges.\40\ The Proposed Access Fees 
are fair and equitable and not unreasonably discriminatory because they 
apply equally to all Members regardless of type and access to the 
Exchange is offered on terms that are not unfairly discriminatory. The 
Exchange designed the fee rates in order to provide objective criteria 
for Trading Permit holders that connect via the MEO Interface of 
different sizes and business models that best matches their activity on 
the Exchange.
---------------------------------------------------------------------------

    \40\ See supra note 18.
---------------------------------------------------------------------------

    Finally, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive. In such an environment, the Exchange must continually adjust 
its fees for services and products, in addition to order flow, to 
remain competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment.
    The Guidance provides that in determining whether a proposed fee is 
constrained by significant competitive forces, the Commission will 
consider whether there are reasonable substitutes for the product or 
service that is the subject of a proposed fee. As described below, the 
Exchange believes substitute products and services are available to 
market participants, including, among other things, other options 
exchanges that market participants may connect to in lieu of the 
Exchange, indirect connectivity to the Exchange via a third-party 
reseller and/or trading of any options products, including proprietary 
products, in the Over-the-Counter (``OTC'') markets. Indeed, there are 
currently 16 registered options exchanges that trade options, some of 
which have similar or lower connectivity fees.\41\ Based on publicly 
available information, no single options exchange has more than 
approximately 14-15% of the market share as of June 30, 2021.\42\
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    \41\ See e.g., Phlx and ISE Rules, General Equity and Options 
Rules, General 8, Section 1(b). Phlx and ISE each charge a monthly 
fee of $2,500 for each 1Gb connection, $10,000 for each 10Gb 
connection and $15,000 for each 10Gb Ultra connection, which the 
equivalent of the Exchange's 10Gb ULL connection. See also NYSE 
American Fee Schedule, Section V.B, and Arca Fees and Charges, Co-
Location Fees. NYSE American and Arca each charge a monthly fee of 
$5,000 for each 1Gb circuit, $14,000 for each 10Gb circuit and 
$22,000 for each 10Gb LX circuit, which the equivalent of the 
Exchange's 10Gb ULL connection.
    \42\ See https://markets.cboe.com/us/options/market_statistics/.
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    There is also no regulatory requirement that any market participant 
connect to any one options exchange, that any market participant 
connect at a particular connection speed or act in a particular 
capacity on the Exchange, or trade any particular product offered on an 
exchange. Moreover, membership is not a requirement to participate on 
the Exchange. A market participant may submit orders to the Exchange 
via a Sponsored User.\43\ Indeed, the Exchange is unaware of any one 
options exchange whose membership includes every registered broker-
dealer. Based on a recent analysis conducted by the Cboe Exchange, Inc. 
(``Cboe''), as of October 21, 2020, only three (3) of the broker-
dealers, out of approximately 250 broker-dealers, were members of at 
least one exchange that lists options for trading and were members of 
all 16 options exchanges.\44\ Additionally, the Cboe Fee Filing found 
that several broker-dealers were members of only a single exchange that 
lists options for trading and that the number of members at each 
exchange that trades options varies greatly.\45\
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    \43\ See Exchange Rule 210. The Sponsored User is subject to the 
fees, if any, of the Sponsoring Member. The Exchange notes that the 
Sponsoring Member is not required to publicize, let alone justify or 
file with the Commission its fees, and as such could charge the 
Sponsored User any fees it deems appropriate, even if such fees 
would otherwise be considered supra-competitive, or otherwise 
potentially unreasonable or uncompetitive.
    \44\ See Securities Exchange Act Release No. 90333 (November 4, 
2020), 85 FR 71666 (November 10, 2020) (SR-CBOE-2020-105) (the 
``Cboe Fee Filing''). The Cboe Fee Filing cited to the October 2020 
Active Broker Dealer Report, provided by the Commission's Office of 
Managing Executive, on October 8, 2020.
    \45\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
Intra-Market Competition
    The Exchange believes that the Proposed Access Fees do not place 
certain market participants at a relative disadvantage to other market 
participants because the Proposed Access Fees do not favor certain 
categories of market participants in a manner that would impose a 
burden on competition; rather, the fee rates are designed in order to 
provide objective criteria for users that connect via the MEO Interface 
of different sizes and business models that best matches their activity 
on the Exchange.
    The Exchange believes the removal of the Monthly Volume Credit and 
Trading Permit fee credit will not place certain market participants at 
a relative disadvantage to other market participants because, in order 
to attract order flow when the Exchange first launched operations, the 
Exchange established these credits to lower the initial fixed cost for 
Members. The Exchange now believes that it is appropriate to remove 
this credit in light of the current operating conditions, including the 
Exchange's overall membership and the current type and amount of volume 
executed on the Exchange. The Exchange believes that the Exchange's 
rebates and fees will still allow the Exchange to remain highly 
competitive such that the Exchange should continue to attract order 
flow and maintain market share.
Inter-Market Competition
    The Exchange believes the Proposed Access Fees do not place an 
undue burden on competition on other options exchanges that is not 
necessary or appropriate. In particular, options market participants 
are not forced to become members of all options exchanges. The Exchange 
notes that it has far less Members as compared to the much greater 
number of members at other options exchanges. There are a number of 
large users that connect via the MEO Interface and broker-dealers that 
are members of other options exchange but not Members of the Exchange. 
The Exchange is also unaware of any assertion that its existing fee 
levels or the Proposed Access Fees would somehow unduly impair its 
competition with other options exchanges. To the contrary, if the fees 
charged are deemed too high by market participants, they can simply 
discontinue their membership with the Exchange.
    The Exchange operates in a highly competitive market in which 
market participants can readily favor one of the 15 competing options 
venues if they deem fee levels at a particular venue to be excessive. 
Based on publicly-available information, and excluding index-based 
options, no single exchange has more than 16% market share. Therefore, 
no exchange possesses significant pricing power in the execution of 
multiply-listed equity and ETF options order flow. As of June 30, 2021, 
the Exchange had a market share of approximately 5.31% of executed

[[Page 37388]]

multiply-listed equity options \46\ for the month of June 2021, and the 
Exchange believes that the ever-shifting market share among exchanges 
from month to month demonstrates that market participants can 
discontinue or reduce use of certain categories of products, or shift 
order flow, in response to fee changes. In such an environment, the 
Exchange must continually adjust its fees to remain competitive with 
other exchanges and to attract order flow to the Exchange.
---------------------------------------------------------------------------

    \46\ See supra note 25.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\47\ and Rule 19b-4(f)(2) \48\ thereunder. 
At any time within 60 days of the filing of the proposed rule change, 
the Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \48\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

    <bullet> Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#4331362f266e202c2e2e262d3730037f22632b3126257e" http: sec.gov">sec.gov</a>">rule-comments@sec.gov</a>. Please include 
File Number SR-PEARL-2021-32 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2021-32. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-PEARL-2021-32 and should be submitted on 
or before August 5, 2021.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
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    \49\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-15036 Filed 7-14-21; 8:45 am]
BILLING CODE 8011-01-P


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